Global Economics

Jalipo's Pay-to-Play Strategy

The online-video startup aims to beat rival Joost by charging for access to copyrighted content. Studios love it, but will users?

Broadcasters and media content providers know one thing: Demand for online video is only going to grow. Two things that are harder to answer: how to make money from the phenomenon, and how to prevent copyrighted material being uploaded on sites like YouTube, which relies largely on user-generated content.

If the reaction at last week's MIPTV media jamboree at Cannes is any indication, many seem to see a solution in Jalipo, which debuted its pay-per-minute online distribution network for high-quality, professionally produced video and television content. Partners include BBC World and Al Jazeera English. "Content providers were coming up to us saying, 'This is what we've been waiting for,'" says Chief Executive Officer Alex Taylor. "The market is right for this right now."

At first glance, Jalipo would seem like little more than another of the rivals to YouTube that are cropping up in the competitive and increasingly crowded online video space. It just uses a different business model. Joost, the brainchild of Skype founders Niklas Zennström and Janus Friis, is probably the highest-profile rival. It's also aiming to offer high-quality video instead of user-generated content, using an advertising-based platform. Joost scored a coup in February when Viacom (VIA) said it would license full TV shows to the startup.

Will Users Bite?

But Jalipo thinks it has hit on a winning formula that will have content providers flocking to it. In addition to its current roster, it intends to pen deals for indie films, live sports events, concerts, and other long-format programs. Media providers determine the pay-per-minute price, and decide when material is available. Jalipo receives a 20% cut of the revenues. Consumers purchase a series of credits to access its programs. The enticement for media providers is that, unlike advertising, the pay-as-you-go model covers the costs of high-quality streaming, says Taylor. By contrast, he adds, "the ad-supported model is misaligned with costs."

It certainly makes sense for a broadcaster such as Al-Jazeera English, which has faced restrictions for its traditional broadcasts in certain regions, according to Russell Merryman, the broadcaster's Doha-based editor-in-chief of Web and new media. "We wanted to give potential viewers for Al-Jazeera the widest possible range of opportunities, and this was a different way to access the services in high quality," he says. The broadcaster also has a subscription service with Real Networks and arrangements with other providers. It also offers live streaming at low bandwidth for free on its own site.

But will Jalipo prove as enticing for users? After all, some of the same content already can be found on sites like Brightcove for free. What's more, consumers may balk at the need to buy so-called "J:Credits" before they can watch shows. A "false currency is too tough to understand," says Rebecca Jennings, senior analyst at Forrester Research in London. Users want pricing to be as quick and easy as possible, she notes, and "if you create barriers, they will go elsewhere."

Big Ambitions

Jalipo says it has no plans to scrap its pay-per-minute system. But Taylor, who was living in Paris four years ago when he came up with the idea for Jalipo with Brent McNish (now chief technology officer), says advertising will become "increasingly important in the mix." In the second half of the year the company will offer content owners the option to accept advertising around their material. Based on the revenue they generate from ads, content creators will be able to adjust how much they charge in various markets.

With Jalipo, as with all online-video services, there's the thorny issue of exclusivity. BBC World, for example, offers programs on its own branded sites as well as YouTube. "Just saying you have the BBC on board isn't the greatest claim," says Adam Daum, research vice-president at Gartner Dataquest in Egham, Britain.

Forrester's Jennings says Jalipo's approach is "ambitious." High-profile, ad-supported services such as Joost are likely to come out ahead if they can convince media outlets they provide a good vehicle to "get the brand out there." But if anyone can help make the Jalipo model work, it's Chairman Chris Deering, who came on board in 2005. The former president of SonyEurope (SNE), Deering is known in some circles as the "Father of the PlayStation"—not because he invented the software, but because he played such a role in its commercial success.

Multiple Outlets

One of the keys for Jalipo, as with all online video setups, is syndication. Jalipo users will be able to embed links into their own blogs or Web sites, and the content provider gets paid regardless of the site it sits on. For content providers, this provides a major marketing boost. There's an incentive for users, too, who get a payment from the content provider for hosting a program.

It's early days yet, but Jalipo is joining an increasingly crowded field of companies aiming to monetize video content while protecting copyrights. Its reception at MIPTV last week is indicative of just how keen media providers are to find a solution to this problem.

"For video, there's a cost attached, and the cost to stream has to be covered in some shape or form," says Al Jazeera's Merryman. There will always be some segment of the population that will be prepared to pay for content, says Gartner's Daum. What's more, there may be providers—major Hollywood studios come to mind—that see their content as so valuable that they would choose to make it available on multiple formats, though with a particular preference for formats that charge the user. For example, if a consumer prefers to watch a film without ads, he can pay to use Jalipo. Otherwise, he can opt for an ad-based service.

Jalipo won't displace the likes of YouTube or Joost, predicts Daum—it's one of the models that can co-exist with others. And as technology improves and ads become less intrusive, it's improbable that the Jalipo model will become the one of choice for Web-video startups. Says Daum: "Advertising-supported services will always dominate."